Deterioration in the China-Australia trade link

It occurred throughout 2020, with China’s imposition of trade restrictions, both formal and informal, on a number of Australian exports, such as coal, barley, beef, wine and cotton, among others.

However, Coface expects Australia’s GDP to return to its 2019 level later this year. But there is growing concern that an escalation of bilateral tensions will cause China to toughen its stance towards Australia and possibly start targeting Australian service exports, particularly in tourism and education, which could put 2% of GDP. of Australia at risk.

The bilateral relationship between China and Australia, at a time when the geopolitical focus is on Southeast Asia, is multifaceted, ranging from national security, economics and trade to foreign policy and domestic politics.

Trade relations between China and Australia deteriorated when the Australian Anti-Dumping Commission extended anti-dumping duties on Chinese stainless steel sinks on February 28, 2020, following an investigation into Chinese aluminum extrusions. Between March and July of last year, there were eight other anti-dumping actions against Chinese products, such as steel.

On April 19, 2020, Australia pushed for a request for an investigation into the origins of the coronavirus, increasing pressure on China over its handling of the COVID-19 outbreak. During May 2020, China imposed anti-dumping and anti-subsidy duties on Australian barley imports into China, citing investigations initiated in 2018.

China subsequently imposed tariffs on other Australian exports, such as wine, as well as formal and informal bans on products ranging from beef and timber to cotton and charcoal.

A resilient Australian economy

With China taking more than a third of Australia’s total exports, rising trade tensions are seen as a potential threat to the country’s economic prospects. However, iron ore, the mainstay of Australian exports to China, has been spared from the current trade dispute, due to the lack of suitable alternatives.

Meanwhile, despite China’s trade measures, the Australian economy continued a robust recovery from the pandemic, posting two consecutive quarterly GDP growths in the second half of 2020, as business conditions approach normal after relaxation of containment measures.

Bilateral relations can get even worse. So far, Chinese trade restrictions have had minimal impact on the wider Australian economy, due to two main factors: first, the ability of some affected sectors to find alternative markets, such as Saudi Arabia for barley and the countries of the Southeast Asia for cotton; and second, major exports, such as iron ore and natural gas, have not been targeted by China.

Given that both sides interpret the dispute through the lens of national sovereignty, the situation is unlikely to improve anytime soon. Australia’s GDP is expected to return to the 2019 level this year. The future evolution of tensions between China and Australia will be closely followed by Asian countries to orient themselves on the extent of the economic damage that they could suffer if they were caught in a similar situation. Furthermore, amid the current strategic competition and political differences between the US and China, Asian countries will be hard-pressed if they are forced to choose between the two.